UK’s Osborne faces rebellion over Brexit emergency budget

Finance minister George Osborne said on Wednesday he would introduce an emergency budget if Britain voted to leave the European Union, but 57 of his own Conservative Party’s lawmakers said they would block his spending cuts and tax hikes.

Britons will vote in a referendum on June 23 on whether to stay in the 28-member bloc, and the ruling party is profoundly split with Osborne and Prime Minister David Cameron battling for a “Remain” vote while other senior figures campaign for “Leave”.

With opinion polls showing momentum swinging towards Leave, the chief executive of aerospace and engineering group Rolls-Royce wrote to British staff warning that a so-called Brexit could result in important investment decisions being postponed.

Osborne also intensified the tone of his warnings, saying he would have to respond to a Leave vote with tax rises and spending cuts worth 30 billion pounds ($43 billion).

The measures could include a 2-point rise in the basic rate of income tax to 22 percent and increases in tax rates and duties on alcohol and petrol, while spending on health, education and defence could be cut by 2 percent.

“The country does not have a plan if we quit the EU,” Osborne told BBC Radio 4 in an interview.

“We’d wake up in just over a week’s time with no economic plan for our country, with financial instability, with years of uncertainty and you’d have to cut your cloth accordingly. The country would not be able to afford the size of the public services that we have at the moment,” he said.

The official Vote Leave campaign hit back with a statement accusing Osborne of threatening to punish voters, signed by 57 Conservative lawmakers including former party leader and cabinet minister Iain Duncan Smith.

“We do not believe that he would find it possible to get support in Parliament for these proposals,” the statement said.

“If the Chancellor is serious then we cannot possibly allow this to go ahead … If he were to proceed with these proposals, the Chancellor’s position would become untenable.”

Some independent economists said Osborne’s promise of a tighter budget after a “Out” vote could make it harder for Britain’s economy to cope with its uncertain future.

“In the short run, tax increases or spending cuts would be entirely the wrong response to a Brexit shock,” Jonathan Portes, principal research fellow at the National Institute of Economic and Social Research, a think tank, said.

“PUNISHMENT BUDGET”

The government currently has a working majority of 17 in the House of Commons.

The spat represented an escalation in the Conservative Party’s internal war and raised the prospect of a government unable to operate normally in the event of a victory for Leave.

The opposition Labour Party, which has 229 lawmakers, has opposed austerity measures for six years, and one of its pro-Brexit members, Gisela Stuart, said her colleagues would never vote for what she called Osborne’s “punishment budget”.

An opinion poll published late on Tuesday showed the once double-digit lead of the “In” campaign had narrowed to just 1 percentage point. Other polls have shown the “Out” camp ahead, reducing the value of sterling and wiping billions of dollars off global stock markets.

“This is real money out there in the real world and this is the irreversible decision we face next Thursday,” Osborne said.

Housebuilder Berkeley reported a 20-percent drop in reservations of new homes in the first five months of the year, saying buyers were telling the company they were holding off until after the referendum.

Osborne was due to give a speech alongside his predecessor as finance minister, Labour’s Alistair Darling, who was in post during Britain’s descent into the financial crisis in 2008.

“I am even more worried now than I was in 2008,” Darling was due to say. “The Leave campaign has no idea, no plan whatsoever.”

The Vote Leave campaign rejected that assertion, publishing what it said was a post-Brexit roadmap. This called for informal talks with EU countries ahead of a formal negotiation for a new EU-Britain treaty and immediate legislation to make emergency provisions for the transition period.

Pro-Brexit cabinet minister Chris Grayling said that after a Leave vote the public would need to see immediate action.

“We will need a carefully managed negotiation process and some major legislative changes before 2020,” he said in a statement.